Irwin Simon: So as I said, within the U.S. medical cannabis is rescheduled and medical cannabis becomes legal. We being a large medical cannabis producer in Canada and Europe and have the expertise and have the research not knowing what the FDA and not knowing in regards to what the guidelines will be, Tilray is ready to capitalize on all our expertise. Is there a possibility with NAFTA or with other rules that we can export cannabis from Canada that’s GMP certified? Today, you can export cannabis from Canada to other parts of the — other countries around the world if it’s GMP certified. So I’m not sure why that wouldn’t be the case in the U.S. if that happens. My personal belief, if it’s rescheduled from a medical cannabis standpoint, and they leave it up to each of the states on a recreational standpoint, then that is something different.
So I think the big thing is I look into a crystal ball of not knowing where this is going. I think something happens from a rescheduling standpoint. And Tilray is ready to move from a medical standpoint, if there was an acquisition for us, we’re ready to move. And we hold the debt of MedMen. We think the MedMen name still has a strong brand name, even though it’s had its challenges and it’s going through some changes right now to get rid of some of those liabilities in that. And there’s an opportunity that we could execute with the MedMen name across the U.S. The other thing is depending and I think one of the biggest opportunities and we’re seeing some opportunities with Delta 9, which is infused drinks with hemp infused THC. I think the biggest opportunity is in drinks and with our distribution systems, with our brands, within our beer business and spirits, Tilray could get into that.
So not knowing and not — what’s going to happen, I think, as I’ve said, Tilray is circled in the U.S., and it’s not like we’d have to change our model being an MSO where we’re restricted to each state. Right now, we could take our expertise from around the world. We can take our medical expertise, we can take our beverage expertise and bring it to the U.S., once we know which way rescheduling happens, and it goes. So that’s where I’m excited about is once we know what the guidelines are, once we know what the opportunities are, we could easily jump in there without on doing something that we own today.
Michael Lavery: Okay. And just on the beverage side, you touched on your hopes for distribution upside on a lot of the — especially recently acquired brands, but do you have a sense how you coming into this spring shelf resets and what sort of shelf space gains you’re positioned for that are already in hand?
Irwin Simon: So I have — hey Ty, you’re on the call, right? Do you want to jump in there? Listen, I got to tell you in a short period of time. A lot of these brands were just starved on innovation, starved on distribution. We have 500 distributors out there. And I always say to Ty each distributor can do $1 million more, which is not a lot, that’s $500 million. So I think the upside on beer is tremendous. As you look at pricing, you look in regards to the whole spirits industry. I think we’re so well positioned on beer, on innovation that we’re coming out with moving into water, we’re moving into some energy drinks, moving into some other infused drinks. So we’re well positioned with our distributors. We have over 100 salespeople and headquartered people between marketing. So Ty, do you want to just talk about some of the stuff that’s happening.
Ty Gilmore: Yes. No. Thanks, Irwin, and thanks for the question, Michael. Yes. No, we feel really solid about some of the distribution gains, not only that we’ve made in the third quarter. But we also feel solid about the conversations we’re having with several national and regional retailers across on- and off-premise with our brands. Specifically, if I look over Q3, and we’ve gained north of 1,200 new effective placements on our existing brands. And with the innovation, we continue to see uptick every day with our distributor network and how they’re leaning in with us and helping drive distribution. So chains are going to continue to play a critical role in our success, and we’re well suited, as Irwin said, to leverage our partnerships with our distributors and the relationships that we have across the U.S.
Michael Lavery: Okay, thanks so much.
Operator: Thank you. Our next question comes from the line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.
Matt Bottomley: Good morning, everyone. This one is for Carl. I just wanted to go back to the revised guidance here on adjusted EBITDA going into fiscal Q4 here. So I’m just wondering if you could give a little more color on the dynamic between overall revenue progression versus margin expansion. There’s obviously quite still a big step-up expected even in the revised guidance? And then specifically, within that, I’m wondering how much of that is beverage related given that I think you had commented that you’re close to about a $300 million business now in all your beverage portfolios if you run rate this quarter, and I understand there’s seasonality. It’s close to $200 million to $225 million. So I’m just wondering if there’s some step-up on the revenue side, specifically in Q4 when it comes to your alcohol contribution?
Carl Merton: So thanks, Matt. There is significant increase in sales in Q4 in beer. I think we’ve talked a little bit already on the call in terms of the spring reset and hitting those in the key summer selling season, which is really driven in our April and May sales results for the organization, particularly in beer. We’ve also — we’ve talked a few times about challenges in the spirits business with sales growth and that we were going to get resolution of that in Q4 of this year. So that’s also reflected inside of those — that expectation on EBITDA. It’s potentially driving both revenue and margins during that time period. I think on the beer businesses margin side, you are going to see an increase in margins in Q4 that will be driven by just more volume flowing through the facilities as we ramp up production in March and April to hit those April and May sales, because there’s such a quick turnaround time and lack of inventory inside that segment.
We’ve also got the buildup on the cannabis business for the summer period of time and increases in things like pre-rolls and other product forms in the cannabis business that are consumed on a more of a, let’s call it, a shared basis, either in a shared setting or actually share on its own. And so that’s a part of it. And with that increased sales level comes increases in margins just because of efficiency on the production side.
Matt Bottomley: Okay, very helpful. Thank you.
Operator: Thank you. Our next question comes from the line of Doug Miehm with RBC Capital Markets. Please proceed with your question.
Doug Miehm: Yes, thank you and good morning. Question just has to do with, again, the excise tax and going back to this. There’s obviously an opportunity for your company. But I am curious if these changes were to go through and you benefit somewhere between $40 million and $80 million, the way you expected. What do you — what’s your thinking on the other companies, because we’re starting to lose some of the smaller companies, but is this going to provide the smaller companies with another year or two of life? And I’d say the other thing that I’m curious about as it relates to this, could this result in another leg of downward pricing as I try to maintain market share?
Irwin Simon: So I think a couple of things. Yes, I think if companies don’t have to pay the same amount of excise tax that everybody is. I think some of these companies absolutely will survive. And I think listen — I think at the end of the day, we all want a strong cannabis market in Canada. The big thing is, again, what’s got to change is the excise tax. And yes, we probably are the highest, we are the highest payer of excise tax in Canada. So for us to receive back $80 million is a lot of money. But at the end of the day, it’s money that we’re going to put into building our brands, building our products, our innovation and hopefully, marketing and building a bigger category out there. And I think that’s ultimately the benefit that the money is not going back to taxes, it’s going back in to build the marketplace and back into continuously grow the industry.
So yes, well more competition be out there. Could there be price compression? Absolutely. But I’ll tell you what, I don’t mind some more price compression. I don’t mind some more LPs being in there. I wouldn’t mind that $80 million coming into our company where we can invest it back in our business and drive growth, drive innovation and drive marketing of brands to a much bigger category.
Carl Merton: I think it’s also important to understand that different entities are going to have different amounts of a win rate into this, right? And as we get closer to the tail end of share, the impact for a lot of those companies is going to be a lot less. And if they’re behind on their excise taxes, the excise tax garnishment may have the bigger impact for them. We’re on the — as Irwin said, we’re on the opposite end of that tail, because we’re the largest. And then you’ve got a bunch of companies in the middle where I think that is more towards what your question was, where you’re going to see some people who will be able to survive a little bit easier.
Irwin Simon: And I don’t think excise tax is going to keep everybody business here, okay? I hope not. I continuously see more consolidation in the Canadian market. I see some of the smaller players ultimately going away and I think that’s what happens there as a new industry, there’s just a filtration of these LPs. If you come back and look at it today, 25 LPs make up about 50% of the market share. There’s about another 1,000 LPs that make up the other 50% market share. So A, see some consolidation. You see companies going away. And I think what this creates is a much stronger cannabis industry within the Canadian market. And if what happens also, as I said before, there could be opportunities for grow in Canada to be shipped into the U.S. and other parts of the world, which could enhance the Canadian cannabis industry.
Carl Merton: Okay, excellent. Thank you.
Irwin Simon: Thank you.
Operator: Thank you. Our next question comes from the line of John Zamparo with CIBC. Please proceed with your question.
John Zamparo: Thank you. Good morning. My question is on the cost side, both COGS and SG&A. And there’s just a lot of moving parts here. And I wonder how much FQ3 represents a run rate because you’ve got additional synergies coming from HEXO. It sounds like you have savings on the beverage side as you move away from co-packing agreements, but you’re also investing in innovation and product extensions and it sounds like another variable is selling the production facilities, which I think you said saves $5 million to $7 million annually? So I wonder, when you think about all of this in aggregate, is there a net benefit on the cost side? And do you expect to see total costs come down from FQ3? Because it seems like organic revenue growth is a bit more difficult to achieve in the near-term. Thank you.
Carl Merton: So first off, I think organic growth is going to come, particularly in the fourth quarter as we see the new launches and the new innovation hit the market, particularly in some of these new categories that we’re doing on the beverage alcohol side, including the water and the non-alc playing in that space, playing in the FMB Part T space, things like that are new categories for us. And so I think there are opportunities for organic growth. But if you’re using Q3 as a baseline, I don’t think that’s the right way to look at it. And similarly, I don’t think Q4 is necessarily the right baseline for the exact polar opposite reasons. Q3 is traditionally our lowest quarter in terms of revenue and production, and Q4 is traditionally our highest quarter in terms of revenue and production.
So we’re going to get an uptick on margins as a result of that incremental volume, particularly in beverage alcohol in our legacy business. And that’s going to be what drives a chunk of the earnings guidance, and it’s going to be what drives our results next part.
Irwin Simon: I think the big thing here is, too, you heard me say before, the savings we’re getting from the integration of HEXO and Truss and somewhere is between close to $35 million. We don’t get that immediately. It evens out over the quarter, so it takes us a full-year to get that amount. The second thing is, as we just own the ABI businesses for two months, and just two quarters, as we integrate them into our businesses and start from the procurement from the distribution standpoint, I mean there’s a lot for us to get done here, but we’re focused on organic growth, and we’re starting to see that already. We’re focused on which facilities date and rate these products do, which states we’re going to focus on. We also have 13 group hubs out there that we’re focused on growing our brand through these brewpubs, big event for us, 4/20, coming up April 20.
We have two big events, one in Atlanta and one in Long Island. And there’s also in every retailer, there’s displays built out. So July 4 is one of the biggest beer category months that is sold out there from occasions. So right now, as we bring this together and our aspiration is to grow our beer business to a $300 million business, you have to remember, in 2020, we sold 2.5 million cases when we first acquired the SweetWater brand. Today, we’re on a run rate to 12.5 million cases with tremendous opportunity with all the innovation that’s happening. So there’s just a lot of evening out here, and there’s a lot of moving pieces to bring all this together. And I think the big thing is as we look at it, when we get a full-year behind all these acquisitions with HEXO, with Truss and the integration there, we get all those full-year together with all the ABI stuff, where we’re seeing some great stuff.
